By Peter Switzer

I surprised my mate Rudi Filapek-Vandyck, of FNArena, when I said on Sky News that I was getting a little negative on stocks at the moment. He wanted an official noting of the time, date and place to mark this odd moment in time when Switzer was a tad negative!

The key words to note are “at the moment”, as it’s something I think will pass. And let me throw in that I’m not very negative but I just can’t see where the impetus for growth is going to come from in the short term.

In fact, I think the big white hope is Donald Trump and his tax measures being passed through Congress, but he’s hitting a few political road bumps right now. However, as I pointed out yesterday, Paul Ryan, the Speaker of the House, reckons he’s advancing the measures. That said, the tax cut stimulus will still be something for later this year.

There have also been a lot of negatives coming along at a time when seasonal trends point to a sell-off in stocks from May to October, though as of today the Yanks have wiped out the Trump dump of stocks that started mid May. The S&P 500 closed at a record high this morning our time!

Trying to work out where economic growth and market excitement will come from has made me a little negative, so let me show you what my analysis has come up with:

  • Everyone (from APRA to the RBA to the Government and now the credit rating agencies) is trying to stop our house price boom. In doing so, housing construction is slowing down as well. So a surge in home-building can be ruled out.
  • Retailers are under the threat of “Amazon is coming!” warnings. The problem for this sector was underlined when the local division of Top Shop went into voluntary administration yesterday! Earlier this year JB Hi-Fi reported really well and gave good guidance but its share price has been clobbered. The prime reason is the dark cloud of Amazon.
  • Our banks have been beaten up by the Budget’s bank levy and the S&P’s downgrading of 23 smaller financial institutions. And the big banks are responsible for 27% of the index, so getting to 6000 on the ASX 200 index with unpopular banks will be hard.
  • Our big miners have done well to recover from the bashing, which saw BHP go down as low as $14 or so. It’s now $24.20 and will need a big surge in iron ore prices and China demand to give our stock market a big boost. By the way, iron ore prices are around $US60 a tonne and while I think they can go higher, the consensus view is it will be around these levels for this year.
  • Our dollar remains pretty high so those businesses that would grow with a lower dollar — yes, one in the 60 US cent plus range — are going to be restrained until the currency drops, as many economists predict. But that could be a slow train, which might not come if some of my expert buddies are right!
  • China is growing better than expected but its credit rating was downgraded from Aa3 to A1. This is how The Guardian reported the story: “China’s credit rating has been downgraded by Moody’s for the first time in almost 30 years over fears that slowing growth and rising debts will weaken the world’s second largest economy.”
  • Here in Australia, wages growth is not making me too confident that consumers will go mad in the short term and spend big time, especially with banks starting to raise interest rates. Also I expect that worrying house price stories are not helping the economy.

I could go on with the negatives but I’m not super pessimistic — just a little concerned that I can’t see what’s going to turn things into the positive any time soon.

I think the economy is doing OK, with unemployment falling last week and job ads have been good. The $75 billion infrastructure spending in the Budget will be a positive but it will take time to kick in.

Trump’s tax cuts will bring optimism but that again will be some time off and I think local company earnings might bring surprises in August but again adds to my waiting game.

So how am I playing the market now? I think we are looking at a buying opportunity, where some good companies, such as the banks and even the retailers, have been over-trashed. That said, I’m not expecting any dramatic market slides. And I damn well hope I’m on the money! I don’t do negativity easily.